January 19, 2009 07:20am
AUSTRALIA'S economy will "unwind scarily fast" this year with Treasurer Wayne Swan forced to choose between middle-class welfare and industry bailouts, a report claims.
Leading economic forecaster Access Economics warns in its quarterly Business Outlook, released today, that the nation's economic boom will unravel , halving corporate profits, costing more than 300,000 people their jobs and blowing out the current account deficit to more than $100 billion.
And Queensland is set to be hardest hit by a looming recession, as the collapse in the resource sector strangles our once booming economy and forces the state ``into the slow lane'' for several years.

"Batten the hatches. This is not just a recession. This is the sharpest deceleration Australia's economy has ever seen," the report says.
Thanks to China's growth, Australia last year escaped the recessions that sent major economies such as the US and Britain into reverse.
The Government has consistently talked up the economy's prospects for 2009, citing Treasury forecasts of 2 per cent growth in 2008-09.
But yesterday Wayne Swan acknowledged there was "no point gilding the lily in any way".
"The year ahead will be tough, and there's no quick fix," the Treasurer said.
The Access Economics report is the latest to challenge the Treasury forecasts for the Australian economy, released in November, before the full extent of China's slowdown became apparent.
In an interview with The Weekend Australian, Mr Swan conceded neither the budget nor the economy would meet the official published forecasts.
"China and other emerging economies, now caught up in this crisis, are expected to slow much more sharply than previously anticipated," he said yesterday.
Access Economics director Chris Richardson said Mr Swan would already have more updated, unpublished Treasury forecasts that exposed the extent of the problems facing his budget.
"The Government knows how ugly things are. None of this is a surprise to them," he said.
Access Economics said the federal budget was "buggered" because of its heavy reliance on company taxes and royalties - both of which would be hit hard by the collapse in commodity prices.
"The glory days of big budget surpluses are over, and the feds are now staring down the barrel of deficits as far as the eye can see," its outlook says.
The total public sector deficit - which combines federal, state and local government balances - is forecast to blow out to $10.5 billion this financial year, mostly due to Canberra's stimulus package.
But while Mr Swan may be able to rein in that deficit in 2009-10, the reprieve will be shortlived. Access Economics predicts that in the following year commodity price falls will exact a $22.8 billion toll from total government finances, which are dominated by the federal budget.
The national fiscal deficit could blow out to $29.4 billion in 2011-12. Such a shortfall could cripple the Government's capacity to deliver promised tax cuts, maintain programs, cushion the cost of its emissions trading scheme and fund infrastructure spending plans.
Access Economics warns that the Government and Opposition could "freeze in the headlights" as a result, choosing to shore up existing handouts to the middle class and to the car industry rather than making the politically difficult decision to cut them in favour of more worthy uses, such as building infrastructure.
It says China's sharp downturn will impact heavily on the sun belt states of Queensland and Western Australia, with the slackening demand for resources draining them of economic strength.
"Queensland may be in the unusual position of shrinking as a share of the Australian economy for a few years," Access Economics says.
But it says all is not lost in Queensland with output growth still above the national average while our businesses still spend at a more rapid rate than other states.
Queensland's population growth also remains "magnificent" while unemployment is low and the Bligh Government is still spending up a storm.
It is the "future negatives" which will weigh heavily on our growth as the fall in commodity prices jeopardises many of our planned big projects.
"The big fall in commodity prices is likely to mean many projects in the very large pipeline of possible works may never see the light of day."

I just hope the federal government gets over its fear of a budget deficit. To some extent they've been sucked in by the opposition's taunting about deficits. I'm no economist of course but those who know what they're on about are telling the feds not to get scared of deficit as in tough times governments have to do it to keep things going. So, while Chris Richardson has belled the cat that's a good thing because he's blunting the opposition's ability to scare the government. Those of us who read the newspaper and think about these things understand that it's necessary and actually good management.

I'm just glad the rest of the world can't blame us for this. We're just victims, like everyone else.

On the brighter side, some of the smaller state economies (like mine) are predicted to grow 2% -3% even in the midst of the global crisis. So it's not all bad.

Shipping rates hit zero as trade sinks
Freight rates for containers shipped from Asia to Europe have fallen to zero for the first time since records began, underscoring the dramatic collapse in trade since the world economy buckled in October.

By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 3:39PM GMT 14 Jan 2009

"They have already hit zero," said Charles de Trenck, a broker at Transport Trackers in Hong Kong. "We have seen trade activity fall off a cliff. Asia-Europe is an unmit igated disaster."

Shipping journal Lloyd's List said brokers in Singapore are now waiving fees for containers travelling from South China, charging only for the minimal "bunker" costs. Container fees from North Asia have dropped $200, taking them below operating cost.

Industry sources said they have never seen rates fall so low. "This is a whole new ball game," said one trader.

The Baltic Dry Index (BDI) which measures freight rates for bulk commodities such as iron ore and grains crashed several months ago, falling 96pc. The BDI  though a useful early-warning index  is highly volatile and exaggerates apparent ups and downs in trade. However, the latest phase of the shipping crisis is different. It has spread to core trade of finished industrial goods, the lifeblood of the world economy.

Trade data from Asia's export tigers has been disastrous over recent weeks, reflecting the collapse in US, UK and European markets.

Korea's exports fell 30pc in January compared to a year earlier. Exports have slumped 42pc in Taiwan and 27pc in Japan, according to the most recent monthly data. Even China has now started to see an outright contraction in shipments, led by steel, electronics and textiles.

A report by ING yesterday said shipping activity at US ports has suddenly dived. Outbound traffic from Long Beach and Los Angeles, America's two top ports, has fallen by 18pc year-on-year, a far more serious decline than anything seen in recent recessions....

I just hope the federal government gets over its fear of a budget deficit. To some extent they've been sucked in by the opposition's taunting about deficits. I'm no economist of course but those who know what they're on about are telling the feds not to get scared of deficit as in tough times governments have to do it to keep things going. So, while Chris Richardson has belled the cat that's a good thing because he's blunting the opposition's ability to scare the government. Those of us who read the newspaper and think about these things understand that it's necessary and actually good management.

I'm just glad the rest of the world can't blame us for this. We're just victims, like everyone else.

On the brighter side, some of the smaller state economies (like mine) are predicted to grow 2% -3% even in the midst of the global crisis. So it's not all bad.

Click to expand...

It would be better if the government lowered it's spending rather than trying to spend their way out of a recession.

The reports here are that because China's domestic consumption has dropped faster than anyone (the experts) expected then we're going to suffer as 15% of our exports go to China. China ain't buying so we're hurting.

Laissez-faire, then, was the policy dictated both by sound theory and by historical precedent. But in 1929, the sound course was rudely brushed aside. Led by President Hoover, the government embarked on what Anderson has accurately called the "Hoover New Deal." For if we define "New Deal" as an antidepression program marked by extensive governmental economic planning and intervention  including bolstering of wage rates and prices, expansion of credit, propping up of weak firms, and increased government spending (e.g., subsidies to unemployment and public works)  Herbert Clark Hoover must be considered the founder of the New Deal in America. Hoover, from the very start of the depression, set his course unerringly toward the violation of all the laissez-faire canons. As a consequence, he left office with the economy at the depths of an unprecedented depression, with no recovery in sight after three and a half years, and with unemployment at the terrible and unprecedented rate of 25 percent of the labor force.

Hoover's role as founder of a revolutionary program of government planning to combat depression has been unjustly neglected by historians. Franklin D. Roosevelt, in large part, merely elaborated the policies laid down by his predecessor. To scoff at Hoover's tragic failure to cure the depression as a typical example of laissez-faire is drastically to misread the historical record. The Hoover rout must be set down as a failure of government planning and not of the free market.

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